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Child and Dependent Care Tax Credit: What Families Need to Know About Filing

Kerri in Austin, TX
April 9, 2018

Families can cut their child care costs by hundreds with this simple tax break.

Learn All About the Child or Dependent Care Tax Credit
Image via Getty Images/jacoblund

Families that have care-related expenses for qualified dependents are able to file for the federal Child and Dependent Care Tax Credit on Form 2441. This tax credit can save families hundreds of dollars each year and is filed with their 1040. There is no income restriction on this tax credit, but both parents must work, be looking for work, or be full-time students.

Qualifying Expenses

Families may apply the following care-related expenses:

  • wages paid to a caregiver
  • employer taxes paid on those wages
  • fees paid to a placement agency to find the caregiver
  • fees paid to a day care or day camp (overnight camps do not qualify)

Expense Limits

Families with one child under age 13 can itemize up to $3,000 per year, while families with two or more children can itemize up to $6,000 per year.

Tax Credit Percentage

The tax credit percentage is based on the family's adjusted gross income. Most families will get a 20 percent credit, which yields a direct tax reduction of $600 per year for one child or $1,200 per year for two or more children.

Federal Employer Identification Number (EIN)

In order to take the credit, you will need to have obtained a Federal EIN. That number should be applied to the nanny's wages and the employer taxes for that nanny. If you itemize fees paid to an agency or day care, those expenses would use the companies' EIN. (Note: If you've already reached your expense limit with the nanny's wages, there is no need to chase down these business EINs). In addition, you'll need to make sure you follow the other federal and state nanny tax obligations.

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